Dickerson: Can Washington Ever Get Serious About an Energy Policy?
For energy investors, the past few years have been marked by ups and downs and everything in between. Volatility has always been a key feature of investing in energy companies. After all, their financial fortunes rise or fall with energy prices, which take their cue from all corners of the global economy.
But nobody counted on the Jekyll and Hyde routine we’ve seen out of Washington on all things energy. Going by what’s transpired, one could reasonably conclude that our leaders’ sole objective is to make everybody involved in energy unhappy.
Think about it. Nearly every energy option has been derailed by stop-and-start policy decisions. The environmentalist community was told to expect a price on carbon only to see their hopes dashed by a Congress more interested in taking on immigration reform or holding solar and wind energy tax credits hostage yet another year. Nuclear energy advocates were told their emissions-free energy source was the bridge to the future, before safety lapses at a reactor in Japan caused US politicians to withdraw their support.
Washington’s whiplash act on energy is perhaps best exemplified in their treatment of fossil fuels. Royalties from oil and gas drilling have plunged more than 90 percent these past four years because of permitting delays and rejections. But with news that innovative hydraulic fracturing – or “fracking” – technologies and practices may soon help the United States become a net energy exporter, some industry antagonists in Congress are falling over themselves to take credit – even as they propose new restrictions on fracking activities.
When it comes to energy policy, investors need leaders with an unwavering long-term vision – the equivalent of plugging an address into a GPS and taking the quickest path to it. Instead, we have an administration and a Congress that cannot settle on a destination. And now we’re stuck in a cycle of constant “recalibrating route” signals.
Now comes the question of where we’re going to put all the money to work that’s piling up on the way. The world’s largest private equity firms, who see enormous opportunity in the sector, have raised more than $33 billion to invest in energy over the past three years, more than double the prior mark. (Read More: US Crude Oil May Test $100 This Week, Building Case for SPR Oil: Survey)
Unless this election spurs our elected leaders to start producing proactive energy policies for the long term, we risk seeing that much-needed capital go those places that understand the value of long-term planning and staying the course. With two short months before national elections, we all need to start pressing the candidates to answer three critical questions.
What kinds of energy do we want?
A We Campaign ad that ran before the 2008 elections showed giant light switches across the country being turned on as part of a push by Al Gore’s Alliance for Climate Protection to get 100 percent of our electricity from renewables within 10 years. The point was unmistakable: We can get our power from fossil fuels or renewables – but not both.
Thankfully - we don’t live in a world of such absolutes. Last year, all renewable energy sources excluding hydropower provided less than 5 percent of America’s electricity, meaning Gore’s “switch” would leave about 95 percent of us in the dark.
Such “either-or” decision trees for addressing our energy challenges are fake foliage at best – they simply don’t stand up under duress. The reality is we are going to need as many cost-competitive sources of energy as we can get our hands on in the years ahead.
An “all of the above” energy platform may sound like a broken drum at this point but it’s an instrument worth banging on. Our nation’s electricity demand is projected to increase 22 percent by 2035, and that’s just here at home. On a global basis, we’re looking at a 36 percent jump as rapidly emerging nations catch up with the developed world. What solar and wind energy technologies we don’t put to use here will be needed to power those economies where little grid infrastructure exists. And if we don’t produce them, somebody else will capitalize on that opportunity.
Where do we want to produce it?
Thanks to technological advances unlocking new sources of oil in shale-rock formations and deep beneath the ocean floor, the Energy Information Administration now believes that America will be able to halve its reliance on Middle East oil by the end of this decade and could end it completely by 2035.
But there’s a funny thing about domestic energy production – it actually has to happen here to be labeled as such. Currently, the federal government leases less than 2.2 percent of federal offshore areas and less than 6 percent of federal onshore lands for oil and natural gas production. And we’re moving in the wrong direction – production of oil on federal lands fell by 11 percent last year. (Read More:Yoko Ono, son launch anti-fracking coalition in NY)
The Not-In-My-Backyard protectionism that has scuttled or delayed proposed projects such as the Keystone XL pipeline isn’t confined to fossil fuels either. New developments seeking to tap wind energy off the Massachusetts coast, solar energy in California, and siting interstate renewable energy transmission lines have been just as hotly contested.
Members of Congress seeking to punt energy production into neighboring states risk kicking the ball all the way onto some other country’s playing field – at their own constituents’ great expense.
How much government support is necessary?
The greatest support the federal government can give to energy companies and entrepreneurs is providing that which they cannot do for themselves. Domestically, that means establishing long-term goals for each energy source and reducing existing barriers to responsible development of those resources.
For existing energy sources, the government should establish fixed and unyielding timetables for all resource development approvals, rather than stringing along project developers for months and years. It should fast-track procedures for companies with proven safety records. And it should streamline permitting processes so that federal lands can be set aside for our future energy needs.
For next-generation energy solutions, we need fresh financing solutions that bring the same level of innovation in the technologies they support. We have seen tax breaks fail in this arena because there is no longer tax equity in the market. One example of a possible fix would be removing obstacles in the tax code that limit the ability to invest in renewable power generation through real estate investment trusts.
The federal government also needs to start practicing what it preaches and begin buying meaningful supplies of our promising alternative technologies. As the nation’s largest energy consumer, the federal government should be an active buyer to help create a market for these innovations and help drive down their cost so we don’t cede the market to low-cost manufacturers elsewhere.
Here on the eve of the general election, it is my sincere hope that Americans will press the presidential candidates to answer these questions. Whether you’re an incumbent energy player, an environmentalist, or a private equity investor, we’ve all grown tired of the reactionary reshuffling that has come to define energy policy over the last four years.
Energy is America’s promise. With predictable, long-term policies and a strong, unyielding vision, we can and will make good on it.
Paul Dickerson, a partner with Haynes and Boone LLP and host of “The Energy Makers” radio program (www.theenergymakers.com), served as chief of staff at the U.S. Department of Commerce from 2005 to 2006 before serving as chief operating officer at the U.S. Department of Energy from 2006 to 2008.